Long-haul pipeline owners enjoy consistent cash flow that’s guaranteed by long-term contracts with some of the world’s strongest companies. Better still, these capacity-reservation agreements generate steady income regardless of whether oil fetches $200 a barrel or $20 per barrel.

But some investors worry that depressed natural gas prices could upset these favorable economics and inhibit pipeline owners’ distribution growth.

Critics argue that the abundance of cheap natural gas throughout North America limits the need to transport the commodity over long distances. The rapid development of the Marcellus Shale in Pennsylvania and West Virginia, for example, has limited demand for natural gas sourced from the Rockies or the Gulf Coast. Accordingly, the bears worry that future capacity-reservation for these assets won’t be as favorable.

Pipeline stocks have been popular in recent years as investors burned by dividend cuts during the financial crisis and Great Recession seek names that offer above-average yields and reliable income. The recent surge in mergers and acquisitions has extended valuations even further. Units of Conservative Portfolio stalwart Enterprise Products Partners LP (NYSE: EPD) and other major pipeline owners continue to trade above reasonable buy targets, while distribution yields have declined considerably from summer 2011.

Higher unit prices mean greater expectations–and greater disappointment in the event of a slip-up. Aside from valuation, the risks of investing long-haul pipeline companies remain remarkably low. Our favorite master limited partnerships (MLP) continue to ensure that customer demand justifies their midstream construction projects and guarantee solid returns on investment by securing long-term capacity-reservation agreements.

That being said, the cash flow generated by some pipelines can vary with throughput; in these instances, a prolonged drop in volumes can weigh on profitability. However, an increasing number of these agreements follow the take-or-pay model, which guarantees a minimum rate of return regardless of whether the customers uses its allotted capacity. Other contracts include escalation clauses based on inflation or rates set by the Federal Energy Regulatory Commission.

A precipitous decline in North American consumption of natural gas would sap demand for additional pipeline capacity. Demand for the commodity tumbled this winter, albeit not because of structural developments; instead, an unseasonably warm winter pushed inventories to record highs and further depressed the price of natural gas.

But investors should remember that Old Man Winter is notoriously fickle and that weather changes with the season. It’s too early to say, but we could be in for a cold winter in 2012-13. Meanwhile, ultra-low natural gas prices will continue to stimulate demand and prompt electric utilities and industrial plants to consider switching from coal, particularly in the South.

With low prices likely to stimulate demand for natural gas, more pipeline capacity will be required. And with ready access to inexpensive capital, our favorite MLPs have no problem financing these much-needed expansion projects.

For example, Enterprise Products Partners’ bonds maturing in January 2068 boast a yield to maturity of 5.41 percent, the MLP’s BB+ credit rating from Fitch and Standard & Poor’s. Meanwhile, Conservative Portfolio holding Spectra Energy Partners LP’s (NYSE: SEP) 10-year notes sport a yield to maturity of about 4 percent.

These firms also have no trouble raising equity capital to support organic growth projects or fund major acquisitions. In this environment, these low-risk projects generate exceptional returns.

We’ll know the pipeline boom is nearing its end when MLPs adopt a build-it-and-they will-come approach and approve projects based on anticipated demand rather than securing contracts prior to construction. Rising oil, NGL and natural gas production should ensure that this bubble won’t burst for some time, while the recent collapse in the price of natural gas should likewise prompt management teams to remain conservative.

Meanwhile, our favorite pipeline companies–including those that own long-haul gas pipelines–continue to thrive.

Conservative Portfolio holding Kinder Morgan Energy Partners LP (NYSE: KMP) kicked off first-quarter earnings season for master limited partnerships (MLP), releasing results and hosting a conference call for analysts on April 18, 2012.

One of North America’s largest pipeline transportation and energy storage companies, Kinder Morgan Energy Partners grew its first-quarter distributable cash flow by 21 percent from year-ago levels, largely because of new midstream assets that came onstream.

The blue-chip MLP’s asset base will grow even larger once its general partner Kinder Morgan Inc (NYSE: KMI) closes its acquisition of El Paso Corp (NYSE: EP) and transfers some of these pipelines to the limited partner via drop-down transactions.

Kinder Morgan Energy Partners will divest some pipeline assets for the deal to gain the   Federal Trade Commission’s approval. Some assets may fetch less-than-optimal prices, reflecting the perception that long-haul natural gas pipelines face headwinds.  

But investors in Kinder Morgan Energy Partners face little risk. For one, Kinder Morgan Inc has promised to transfer assets from El Paso to replace any cash flow lost by the sale of its legacy assets.

Meanwhile, the MLP’s long-haul pipelines generally remain in demand, despite prevailing natural gas prices. In fact, the firm’s natural gas pipelines segment generated first-quarter earnings before depletion, depreciation and amortization (DD&A) of $279 million–up 25 percent from the first three months of 2011.

Management expects the division to grow earnings before DD&A by 19 percent in 2012, fueled by the purchase of a 50 percent interest in KinderHawk, a system of gathering and treatment assets that service Louisiana’s Haynesville Shale. The company also expects cash flow generated by the Fayetteville Express Pipeline to grow in 2012. Overall throughput was up 4 percent from the first quarter of 2011, paced by an 11 percent boost in Texas intrastate sales by volume.

Kinder Morgan Energy Partners’ experienced management team has built a diversified portfolio of energy-related assets that will help offset weakness in a particular business line.

The company’s carbon dioxide business segment, which sources and delivers carbon dioxide used to enhance production from mature oil fields, was the standout performer in the first quarter. Rising demand for carbon dioxide among producers in the Permian Basin fueled a 31 percent increase in the segment’s earnings before DD&A, leaving the business on track to meet management’s full-year growth target of 26 percent.

The MLP also inked several new contracts to supply 450 million cubic feet per day of carbon dioxide–roughly one-third of its current supply contracts. Management expects to sign additional deals an approve $1 billion to $1.5 billion in capital expenditures to expand its production platform.

Kinder Morgan Energy Partners also stands to take advantage of booming NGL output; the publicly traded partnership’s Snyder Gasoline Plant set a record for NGL production for the third consecutive quarter. Although these assets have exposure to commodity prices, the MLP has hedged this risk to ensure solid returns.

The products pipelines division was the lone laggard during the first three months of the year, as throughput volumes declined 1.6 percent on a year-over-year basis–in line with the drop in refined-product volumes reported by the Energy Information Administration.

Although management acknowledged that volumes were unlikely to recover in the near term, the team highlighted growth opportunities in the Eagle Ford shale, a liquids-rich unconventional play in south Texas.

The MLP expects to complete a crude oil and condensate pipeline in May 2012 that will connect the Eagle Ford Shale to the Houston Ship Channel. A condensate processing facility slated to come onstream in the first quarter of 2014 will enhance the value of these pipeline assets. The facility will have an initial throughput capacity of 50,000 barrels per day and could be expanded to accommodate to 100,000 barrels per day.

The terminal assets included within Kinder Morgan Energy Partners’ product pipelines segment were a bright spot during the quarter, largely because of two new tanks that came online at the Carson Terminal in California. With five additional tanks expected to begin service in late 2012 and early 2013, storage capacity at the site will expand to 560,000 barrels of refined products. Customers have already booked all this capacity under long-term agreements.

During the first quarter, the blue-chip MLP generated $1.37 per unit in distributable cash flow, enough to cover its payout of $1.20 per unit (up 5 percent from a year ago) by 1.14 times. For the full year, management expects the firm to grow its distribution by 8 percent, to $4.98 per unit.

Over the next few years, drop-down transactions involving assets acquired by Kinder Morgan Inc in its takeover of El Paso should fuel distribution growth. But management also has a number of organic expansion projects in the works, including $1.9 billion worth of investments and small acquisitions slated for 2012.

One noteworthy project is a joint venture with Copano Energy LLC (NSDQ: CPNO) to build a gathering and processing system that will service the Eagle Ford Shale in south Texas. Management also plans to more than double the capacity of its Trans Mountain pipeline to transport output from Canada’s oil sands to terminals on the Pacific Ocean for shipment to Asia.

In short, the crash in gas prices hasn’t inhibited Kinder Morgan Energy Partners’ growth prospects or its ability to pay its distribution. Buy Kinder Morgan Energy Partners when the stock dips to less than 82.

Fellow Conservative Portfolio holding Genesis Energy LP (NYSE: GEL) has also reported first-quarter results. The publicly traded partnership owns a diverse portfolio of midstream assets, including refinery-related plants, pipelines, storage tanks and terminals, marine operations, and trucks and truck terminals. With little exposure to natural gas-related assets, Genesis Energy LP offers plenty of upside.

The MLP last month boosted its distribution for the 27th consecutive quarter and covered this higher payout a 1.11-to-1 margin.

Available cash before reserves–the primary measure of Genesis Energy’s profitability–climbed 24 percent from the first quarter of 2011. The MLP in early January completed the purchase of interests in several oil pipeline systems from Marathon Oil Corp (NYSE: MRO), and these new assets increased overall throughput volumes by more than 250,000 barrels of oil equivalent a day. The MLP’s supply and logistics segment posted a 20 percent increase in throughput, driven by rising volumes in the Bakken Shale and the Eagle Ford Shale.

Genesis Energy continues to build out its takeaway capacity in the oil-rich Niobrara Shale, the Eagle Ford Shale and the Gulf of Mexico.

During a conference call to discuss first-quarter earnings, CEO Grant Sims answered a question about purchasing natural gas-related assets by stating Genesis Energy’s “core competency” is setting up and running integrated business that focus on oil. Buy Genesis Energy LP up to 30.

Growth Portfolio holding Energy Transfer Partners LP (NYSE: ETP) owns long-haul gas pipelines, including a 50 percent interest in Florida Gas Transmission that the MLP acquired after its general partner, Energy Transfer Equity, (NYSE: ETE) took over Southern Union.

The MLP earlier this week announced another transformative deal: The $5.3 billion acquisition of Sunoco (NYSE: SU). Energy Transfer Partners targeted Sunoco for its extensive portfolio of midstream assets, which includes 2,500 miles of refined-product pipelines, 5,400 miles of oil pipelines and terminals capable of holding 42 million barrels.

Energy Transfer Partners currently owns 21,500 miles of natural gas pipelines, 1,500 miles pipes that transport natural gas liquids (NGL) and significant gas processing and treating capacity. Once the acquisition closes, Energy Transfer Partners’ throughput mix would shift from 86 percent natural gas to 55 percent natural gas, 10 percent NGLs, 27 percent crude oil and 8 percent refined products.

Sunoco has exposure to the majority of its midstream assets through its 32.4 percent stake in Conservative Portfolio holding Sunoco Logistics Partners LP (NYSE: SXL) and control over the MLP’s general partner. Sunoco in 2011 received $97 million in pretax distributions from Sunoco Logistics Partners, up from $91 million in 2010. We expect this growth to continue in coming years.

Over the long term, Energy Transfer Partners will seek to expand its exposure oil and refined products midstream assets both through organic growth projects and acquisitions–likely by Sunoco Logistics Partners.

If history serves as any guide, management will delay any distribution increases at least until this deal closes and noncore assets are monetized. Buy Energy Transfer Partners LP up to 50.

Spectra Energy Partners LP (NYSE: SEP), which owns gas gathering, transportation and storage assets, is the result of two spin-offs: Utility outfit Duke Energy (NYSE: DUK) spun off its natural gas-related assets as Spectra Energy (NYSE: SE) in late 2006; a little more than six months later, the fledgling company monetized some of its midstream infrastructure as Spectra Energy Partners LP. Spectra Energy still holds a 2 percent general partner stake in the MLP and holds a solid chunk of the limited-partner units.

At the time of its initial public offering, Spectra Energy Partners received its parent’s East Tennessee Natural Gas system, a 24.5 percent stake in the Gulfstream Pipeline and a 50 percent interest in a gas storage company. In the intervening years, Spectra Energy has dropped down several assets to Spectra Energy Partners, including the Saltville gas storage facility and an additional 24.5 percent interest in the Gulfstream.

The MLP has increased its distribution in every quarter since late 2007. Most recently, management hiked the payout to 48 cents per unit from 47.5 cents per unit–the fourth consecutive half-cent raise after 13 consecutive increases of $0.01 per unit.

Decelerating distribution growth is one reason that the stock has lagged its peers, while cash flow generated by the firm’s storage assets has tumbled because of low gas prices.

Despite this pocket of weakness, Spectra Energy Partners still earns sufficient cash flow to support its quarterly distribution. We also like the firm’s focus on service serving electric power plants in Southeast, where demand for natural gas continues to grow.

First-quarter results will reveal more about how the MLP’s business is faring with natural gas prices trading at depressed levels, but we don’t expect any major surprises. Buy Spectra Energy Partners LP under 33.

Investors remain concerned about Buckeye Partners LP’s (NYSE: BPL) payout ratio, which remains elevated after the MLP issued equity to fund a string of acquisitions. Questions remain about whether these assets will grow the MLP’s cash flow to the extent that management has projected.

The majority of these recently acquired assets handle liquids, so their performance shouldn’t be hampered by ultra-low natural gas prices. A storage facility in California capable of holding 33 billion cubic feet of the beaten-down fuel is the lone exception, and this asset doesn’t generate enough cash flow to threaten the firm’s distribution growth. Buy Buckeye Partners LP up to 65.

Magellan Midstream Partners LP’s (NYSE: MMP) focus on assets that handle oil and NGLs, coupled with a low coverage ratio and above-average distribution growth, continues to attract investors. But at these levels, investors should wait for units of Magellan Midstream Partners LP to pull back below our buy target of 60.

Within our How They Rate universe, Enbridge Energy Partners LP (NYSE: EEP), Holly Energy Partners LP (NYSE: HEP) and Williams Partners LP (NYSE: WPZ) all own pipelines and rate a buy. Each of these MLPs is in the midst of aggressive expansion plans that should reward unitholders.

In the first quarter, Williams Partners posted an 8 percent increase in distributable cash flow from year-ago levels, which covered the MLP’s disbursement to unitholders by a margin of 1.31-to-1.

The acquisition of the privately held Caiman Eastern Midstream gives Williams Partners a beachhead in the liquids-rich southwestern portion of the Marcellus Shale, an area that offers solid economics to producers and should enjoy accelerating drilling activity. The deal will add 150-mile gathering system, two processing facilities with about 320 million cubic feet of capacity and NGL fractionation plants capable of separating 12,500 barrels per day. Expansion projects will increase fractionation capacity to 42,500 barrels of NGLs per day by the end of 2012 and processing capacity to 920 million cubic feet per day by October 2013.

Management estimates that the addition of these assets will enable Williams Partners to grow its distribution by 8 percent in 2012 and 8 percent to 10 percent in 2013 and 2014. Williams Partners and Caiman Energy will also work to develop joint-venture projects in Ohio’s Utica Shale, another attractive growth opportunity.

Meanwhile, deliveries to electric utilities account for one-third of the volumes in a proposed expansion to Williams Partners’ Transco pipeline. That’s again a much more stable source of demand than heating. Buy Williams Partners LP up to 60.

Holly Energy Partners grew its distributable cash flow by 76 percent in the first quarter, prompting management to boost the MLP’s distribution for the 30th consecutive quarter.

Higher revenue from the refined-products segment, as well as improved results from crude pipelines and related logistic services, drove this impressive outperformance. We like Holly Energy Partners’ focus on oil-related assets, but investors should wait for the stock to pull back below our buy target of 55.

Finally, Enbridge Energy Partners offers exposure oil pipelines and gathering and processing systems for natural gas. The units yield almost 7 percent in part because management is more conservative about distribution increases. Enbridge Energy Partners is a low-risk buy up to 32. Investors looking for an MLP to hold in their IRA or another tax-advantaged account should consider Enbridge Energy Management (NYSE: EEO), which offers exposure to the same assets but pays its distribution in stock.